Capital Flows

India and the World EconomyC.P. Chandrasekhar

January 25, 2008

Boosted by media reports and assessments by public and private financial institutions of India’s high growth potential, capital inflows have seen a major surge in India resulting for one in huge foreign exchange reserves. But expectations that India is out to share in the spoils of global dominance may be misplaced since these fail to take account of the kind of liabilities that India is accumulating in order to finance its still incipient global expansion. Also, the more the investor and lender confidence results in capital flows in excess of India’s current account financing needs, the greater is the possibility that such confidence can erode.